SOURCE: Skystar Bio-Pharmaceutical

Skystar Bio-Pharmaceutical

May 23, 2011 20:48 ET

Skystar Bio-Pharmaceutical Reports First Quarter 2011 Results

$7.0 Million Top Line; $0.27 Diluted EPS; Reiterates Fiscal 2011 Top Line Guidance Range of $60 Million to $63 Million; Skystar to Host Conference Call at 7:45 AM EDT on Tuesday, May 24, 2011

XI'AN, CHINA--(Marketwire - May 23, 2011) - Skystar Bio-Pharmaceutical Company (NASDAQ: SKBI) ("Skystar" or the "Company"), a China-based manufacturer and distributor of veterinary medicines, vaccines, micro-organisms and feed additives, today reported unaudited first quarter fiscal year 2011 earnings, for the period ended March 31, 2011.

First Quarter 2011 Highlights

-- Revenue increases 46% YoY to $7.0 million
   -- Veterinary vaccines totaled $0.3 million, up 30% YoY
   -- Veterinary medicines totaled $4.9 million, up 52% YoY
   -- Feed additives totaled $0.3 million, up 38% YoY
   -- Pro-biotic micro-organism products totaled $1.6 million, up 32% YoY
-- Gross Profit $3.6 million up 39% for the first three months of
   fiscal 2011 YoY
-- Gross Margin of 50% for the first three months of fiscal 2011,
   compared to 53% in the prior 2010 period
-- Net Income $1.9 million or $0.27 per fully diluted share, compared
   with $1.1 million or $0.15 per fully diluted share in the year ago
   period
-- Company reiterates Fiscal 2011 revenue guidance range of $60.0 million
   to $63.0 million

The Company notes that while the first quarter of the fiscal year is historically Skystar's slowest quarter due to the celebration of the Chinese Lunar New Year, we believe that Skystar has momentum by its side bolstered by the support of China's changing agricultural policies to standardize and industrialize its agricultural and animal husbandry industries.

As recently as April 2011, Yu Kangzhen, Chief Veterinary Officer of China, in giving a keynote speech stated the Ministry of Agriculture's (MOA) supportive stance towards 'Accelerating development of modern agriculture including efforts to develop specialized, standardized, large-scale and intensive agricultural production and operations for China.' Mr. Yu also commented that, 'It is necessary to give high priority to the expansion of standardized large-scale animal farming.' Skystar believes that its own initiatives to seek out and develop acquisitions, new products, and manufacturing expansion is in line with the modernization of China's agricultural and animal husbandry infrastructure needs.

Management's Comments

Mr. Weibing Lu, Chairman and Chief Executive Officer of Skystar, commented, "We are very pleased to deliver strong results for the start of the fiscal year 2011. Since Skystar's U.S. debut in 2006, we have maintained that product niche, manufacturing capacity and product distribution hold the keys to Skystar's success. The goals of Skystar's business plan and capital markets activity has been to develop and grow these initiatives. To date, Skystar has succeeded in its goals while delivering compounded annual revenue growth of 48% with profitability in mind.

"Part of the MOA's sweeping regulatory changes include new GMP certification standards for vaccine manufacturers, with this in mind, we expect Skystar's new expanded vaccine facility to receive GMP certification by the third quarter of fiscal 2011. The delay is due to putting the new GMP certification standards into effect in addition to the MOA's recent initiatives targeting the general standardization and safety of food production.

"Skystar believes that cash generated from ongoing operations, existing lines of credit and paid-up inventory of raw materials are adequate to fund ongoing operations and the Company's efforts towards GMP certification of the expanded vaccine facility in addition to finalizing the Company's Hubei acquisition which is expected to close before the end of the first half," concluded Mr. Lu.

Financial Summary

Gross profit for first quarter 2011 was $3.6 million, up 39% from first quarter 2010. Gross margin for the period was 50%, a slight decrease from historical year over year comparables.

Operating expenses for first quarter 2010 were $2.0 million, or 28% of total revenue, compared with $0.8 million or 17% of total revenue in the year ago period. Selling expenses, which consist of commissions, advertising and promotion expenses, freight charges, and salaries, totaled $0.4 million for the three months ended March 31, 2011 as compared to $0.1 million year over year, an increase of approximately 115.9%. This increase is a result of increased sales between the two periods and an increase in sales staff. General and administrative expenses totaled $1.3 million for the three months ended March 31, 2011, as compared to $0.6 million for the three months ended March 31, 2010, an increase of approximately 109%. General and administrative expenses for our Chinese operating entities increased due to expanded operations and asset acquisitions related to our Kunshan and Jingzhou subsidiaries.

Research and development (R&D) costs was $0.3 million, or roughly 4% of revenue in first quarter 2010, up from $0.04 million, or less than 1% of revenue during first quarter 2010. The change in R&D expense related to the unusually low cost base in the previous first quarter when there were no significant R&D expenditures at the time.

Income from operations was $1.6 million in the first quarter of fiscal year 2011, compared with $1.7 million in the same quarter a year ago, and operating margin decreased to 23% from 36% in the same period a year ago.

Net income for the first quarter of 2011 was $1.9 million, or $0.27 per fully diluted share. This compares to net income of $1.0 million, or $0.16 per fully diluted share in the same quarter of 2010.

As of March 31, 2010, Skystar had approximately $7.4 million in cash and restricted cash, current assets of $49.1 million and current liabilities of $10.9 million.

Outlook

The Company reiterates Fiscal year 2011 revenue guidance to be in the range of $60 million to $63 million for the full year.

Conference Call & Webcast Information

Skystar will host a conference call at 7:45 a.m. ET on Tuesday, May 24, 2011 to review the Company's first quarter financial and operational performance. Mr. Weibing Lu, Skystar Bio-Pharmaceutical chairman and chief executive officer, will host the call, which will be webcast live.

The webcast will be made available on the investor relations section of the Skystar corporate website at http://www.skystarbio-pharmaceutical.com or http://www.investorcalendar.com. Telephone access to the conference call will also be available in North America by dialing +1 (877) 407-9210 or internationally by dialing +1 (201) 689-8049.

An audio replay of the conference call will be available approximately two hours following the conclusion of the call and for the following 30 day period. To access the replay in North America, dial +1 (877) 660-6853 or, when calling internationally, dial +1 (201) 612-7415, using replay account code # 286 and conference ID # 372960. An archived replay of the conference webcast will also be available on investor relations section of the Skystar corporate website at http://www.skystarbio-pharmaceutical.com.

To be added to the Company's email distribution for future news releases, please send your request to skystar@grayling.com.

About Skystar Bio-Pharmaceutical Company

Skystar is a China-based developer and distributor of veterinary healthcare and medical care products. Skystar has four product lines (veterinary medicines, micro-organisms, vaccines and feed additives) and 256 products. Skystar has formed strategic sales distribution networks covering 29 provinces throughout China. For additional information, please visit http://www.skystarbio-pharmaceutical.com.

            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

     CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME


                                                   For Three Months Ended
                                                          March 31,
                                                  ------------------------
                                                      2011         2010
                                                  -----------  -----------

REVENUE, net                                      $ 7,086,954  $ 4,869,243

COST OF REVENUE                                     3,491,346    2,291,219
                                                  -----------  -----------

GROSS PROFIT                                        3,595,608    2,578,024
                                                  -----------  -----------

OPERATING EXPENSES:
  Research and development                            287,472       43,995
  Selling expenses                                    369,404      171,134
  General and administrative                        1,294,798      619,550
                                                  -----------  -----------
    Total operating expenses                        1,951,674      834,679
                                                  -----------  -----------

INCOME FROM OPERATIONS                              1,643,934    1,743,345
                                                  -----------  -----------

OTHER INCOME:
  Other income (expense), net                             182          417
  Interest income (expense), net                       29,672       (4,816)
  Change in fair value of warrants                    735,494     (317,380)
                                                  -----------  -----------
    Total other expense, net                          765,348     (321,779)
                                                  -----------  -----------

INCOME BEFORE PROVISION FOR INCOME TAXES            2,409,282    1,421,566

PROVISION FOR INCOME TAXES                            477,450      325,319
                                                  -----------  -----------

NET INCOME                                          1,931,832    1,096,247

OTHER COMPREHENSIVE INCOME (LOSS):
  Foreign currency translation adjustment             465,593      (40,816)
                                                  -----------  -----------

COMPREHENSIVE INCOME                              $ 2,397,425  $ 1,055,431
                                                  ===========  ===========

EARNINGS PER SHARE:
  Basic                                           $      0.27  $      0.16
                                                  ===========  ===========
  Diluted                                         $      0.27  $      0.15
                                                  ===========  ===========

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
  Basic                                             7,166,919    7,061,530
                                                  ===========  ===========
  Diluted                                           7,179,309    7,140,140
                                                  ===========  ===========




            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

                        CONSOLIDATED BALANCE SHEETS


                        ASSETS
                                                  March 31,    December 31,
                                                     2011          2010
                                                 ------------  ------------

CURRENT ASSETS:
  Cash                                           $  7,403,389  $  5,887,831
  Accounts receivable, net of allowance for
   doubtful accounts of $341,266 (Unaudited)
   and $339,031 as of March 31, 2011 and
   December 31, 2010, respectively                  5,770,607     4,977,850
  Inventories                                      14,099,464     7,202,223
  Deposits and prepaid expenses                    18,631,564    17,074,000
  Loans receivable                                    458,100     8,040,100
  Other receivables                                 2,735,617     1,558,775
                                                 ------------  ------------
    Total current assets                           49,098,741    44,740,779
                                                 ------------  ------------

PLANT AND EQUIPMENT, NET                           22,450,965    22,613,113

CONSTRUCTION-IN-PROGRESS                            2,660,880     1,590,720

OTHER ASSETS:
  Long-term prepayments                             1,493,794     1,454,226
  Long-term prepayments for acquisitions            4,838,035     4,806,352
  Intangible assets, net                            5,890,246     6,043,941
                                                 ------------  ------------
    Total other assets                             12,222,075    12,304,519
                                                 ------------  ------------
      Total assets                               $ 86,432,661  $ 81,249,131
                                                 ============  ============

         LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                               $    401,132  $    201,850
  Other payable and accrued expenses                2,189,747     1,845,051
  Short-term loans                                  4,307,133     3,025,884
  Deposits from customers                           1,283,376     1,260,030
  Taxes payable                                     2,326,549       749,836
  Shares to be issued to related parties               79,575        53,050
  Due to related parties                              281,200       217,912
                                                 ------------  ------------
    Total current liabilities                      10,868,712     7,353,613
                                                 ------------  ------------

OTHER LIABILITIES:
  Deferred government grant                           992,550       986,050
  Warrant liability                                   684,145     1,419,639
                                                 ------------  ------------
    Total other liabilities                         1,676,695     2,405,689
                                                 ------------  ------------
      Total liabilities                            12,545,407     9,759,302
                                                 ------------  ------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
  Preferred stock, $0.001 par value, 50,000,000
   shares authorized, No Series "A" shares
   authorized 48,000,000 Series "B" shares
   authorized, No Series "B" shares issued and
   outstanding
  Common stock, $0.001 par value, 40,000,000
   shares authorized, 7,161,919 and 6,989,640
   shares issued and outstanding as of December
   31, 2010 and December 31, 2009, respectively         7,162         7,162
  Paid-in capital                                  35,784,378    35,784,378
  Statutory reserves                                5,695,236     5,695,236
  Retained earnings                                26,779,122    24,847,290
  Accumulated other comprehensive income            5,621,356     5,155,763
                                                 ------------  ------------
    Total shareholders' equity                     73,887,254    71,489,829
                                                 ------------  ------------
      Total liabilities and shareholders' equity $ 86,432,661  $ 81,249,131
                                                 ============  ============




            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


                                 Common stock
                            -----------------------   Paid-in
                              Shares      Amount      capital
                            ----------- ----------- -----------
BALANCE, December 31, 2010    7,161,919 $     7,162 $35,784,378

  Foreign currency
   translation
  Net income

                            ----------- ----------- -----------
BALANCE, March 31, 2011       7,161,919 $     7,162 $35,784,378
                            =========== =========== ===========



                               Retained earnings     Accumulated
                            -----------------------    other
                             Statutory              comprehensive
                             reserves  Unrestricted    income      Total
                            ----------- ----------- ----------- -----------
BALANCE, December 31, 2010  $ 5,695,236 $24,847,290 $ 5,155,763 $71,489,829

  Foreign currency
   translation                                          465,593     465,593
  Net income                              1,931,832               1,931,832

                            ----------- ----------- ----------- -----------
BALANCE, March 31, 2011     $ 5,695,236 $26,779,122 $ 5,621,356 $73,887,254
                            =========== =========== =========== ===========




            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
            FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010


                                                     Three months ended
                                                          March 31,
                                                  ------------------------
                                                      2011         2010
                                                  -----------  -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                      $ 1,931,832  $ 1,096,247
  Adjustments to reconcile net income to net cash
   provided by operating activities:
      Depreciation                                    332,428      123,484
      Amortization                                    230,922       91,370
      Common stock issued for services                      -       16,245
      Common stock to be issued to related parties
       for compensation                                     -       27,025
      Change in fair value of warrant liability      (735,494)     317,380
    Change in operating assets and liabilities
      Accounts receivable                            (757,356)     935,790
      Inventories                                  (6,826,437)    (921,558)
      Deposits and prepaid expenses                (1,440,749)    (272,640)
      Other receivables                            (1,162,594)     (81,901)
      Accounts payable                                197,277      123,423
      Accrued expenses                                470,501     (223,979)
      Deposits from customers                          14,989      573,897
      Taxes payable                                 1,566,418      102,941
      Other payables                                 (110,052)       1,233
                                                  -----------  -----------
        Net cash (used in) provided by operating
         activities                                (6,288,315)   1,908,957
                                                  -----------  -----------

CASH FLOWS FROM INVESTING ACTIVITIES:

  Payments of long-term prepayments                  (451,722)           -
  Prepayment for potential acquisition                      -   (5,499,375)
  Collection of loans to third parties              7,609,000            -
  Purchases of intangible assets                      (38,045)           -
  Purchases of plant and equipment                    (22,275)  (1,451,016)
  Payments on construction-in-progress               (634,222)    (404,990)
                                                  -----------  -----------
        Net cash provided by (used in) investing
         activities                                 6,462,736   (7,355,381)
                                                  -----------  -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from short-term loans                    1,257,007            -
  Repayment for short-term loans                            -     (219,975)
  Due (from) to related parties                        62,834      (78,269)
                                                  -----------  -----------
        Net cash provided by (used in) financing
         activities                                 1,319,841     (298,244)
                                                  -----------  -----------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                21,296      (43,315)
                                                  -----------  -----------

INCREASE (DECREASE) IN CASH                         1,515,558   (5,787,983)

CASH, beginning                                     5,887,831   11,699,398
                                                  -----------  -----------

CASH, ending                                      $ 7,403,389  $ 5,911,415
                                                  ===========  ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest                          $    54,409  $     5,210
                                                  ===========  ===========
  Cash paid for income taxes                      $         -  $         -
                                                  ===========  ===========
  Non-cash investing and financing activities
    Long-term prepayment transferred to
     construction-in-progress                     $   421,843  $         -
                                                  ===========  ===========
    Long-term prepayment transferred to property,
     plant and equipment                                    -      439,777
                                                  ===========  ===========
    Construction-in-progress transferred to
     property, plant and equipment                          -       52,463
                                                  ===========  ===========
    Cashless exercise of warrants                 $         -  $ 1,345,496
                                                  ===========  ===========

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Certain of the statements made in the press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology. Such statements typically involve risks and uncertainties and may include financial projections or information regarding the progress of new product development. Actual results could differ materially from the expectations reflected in such forward-looking statements as a result of a variety of factors, including the risks associated with the effect of changing economic conditions in The People's Republic of China, variations in cash flow, reliance on collaborative retail partners and on new product development, variations in new product development, risks associated with rapid technological change, and the potential of introduced or undetected flaws and defects in products, and other risk factors detailed in reports filed with the Securities and Exchange Commission from time to time.

Contact Information

  • Contacts:

    Skystar Bio-Pharmaceutical Company
    Scott Cramer
    Director - Director Corporate Development and U.S. Representative
    (407) 645-4433

    Grayling

    Investor Relations
    Christopher Chu
    (646) 284-9426
    christopher.chu@grayling.com